The last two UK General Elections have been all about the economy.
In 2010, after the deepest recession in living memory, Labour lost the economic confidence of the electorate, and in 2015 they failed to win it back, granting the Conservatives their first majority since 1992 – the same year Bill Clinton won the presidency on the back of a simple slogan that reminded campaigners of their doorstop priorities. “It’s the economy, stupid”, because it usually is.
This election doesn’t seem to be about any single issue, including the economy. It was ostensibly called to grant the Prime Minister a stronger hand in the Brexit negotiations due to start on June 19th, but the past few weeks have seen debate topics range wildly, amid an unexpected narrowing of the race. Occasionally a Brexit-related issue is propelled to prominence (such as net migration promises, or the slightly odd image of a naked Jeremy Corbyn negotiating with a presumably quite surprised Michel Barnier), occasionally an economic one. What no-one seems to be talking about is debt.
In 2016 UK Government net debt was 81% of GDP. To put this in some context, at the time of the 2010 election – when the key issue was public finances – net debt was 69%.
For all the talk of financial probity, living within our means and forensic analysis of manifesto pledges the economy is still heavily dependent on borrowing.
But the real issue is not Government borrowing. Funding public services through borrowing may or may not be sensible depending on your particular economic ideology, and regardless, it is not about to end anytime soon. More interesting – and concerning – are the steadily rising levels of consumer debt, which according to the latest figures have far surpassed levels in 2009. The earth-shattering economic event that came after that is still playing out – incomes are not yet at pre-recession levels, and GDP only reached its 2008 peak in the summer of 2014.
According to Bank of England figures, outstanding credit card debt amongst UK households is worth £67.7bn. For many households this is not the only contributor, with overdrafts, payday loans and hire purchases also playing a part in boosting debt. More than 3.3m households have ‘persistent’ credit card debts (according to the Financial Conduct Authority) but the issue is not just confined to this (significant) minority.
In the weeks after the referendum result in June last year consumer confidence stabilised and retail and consumer spending surged. Pre-Christmas, retailers reported strong figures, and a last minute rush (online and offline) ensured that we entered 2017 on a high. Those who had predicted a post-Brexit economic collapse were rebuked – apparently, everything was fine, nothing had changed.
The reality is that this spending was predicated on record levels of household debt and the signs from the first few months of 2017 is that other economic indicators are starting to fall grimly into line.
As inflation continues to rise we are also assured that there will be no real terms pay rises for UK workers this year, a cocktail that results in one thing: higher cost of living.
Recreation and leisure have been non-negotiable spending priorities throughout the last decade and consumers will soon be faced with a difficult choice: either reign in their spending or continue to borrow and push household debt levels even further. At the very least we are heading for a household debt crisis, if we are not there already. Alternatively we could witness an eerie replaying of the economic story of 2007-10, where a debt-fuelled credit crunch precipitates an all-encompassing economic event.
Either way, it’s time to start talking about debt.